From his consulting experience it
became clear to the author, Ard-Pieter
de Man, that managers do not know
where and how to start the process
of creating an alliance governance
structure. Alliances provides a clear
implementation process.
This bookÂ provides companies with a sophisticated guide
to help craft successful alliances. The combination of the
carefully designed set of checklists plus up-to-date examples
and scenarios from all over the world, provides senior
strategic managers and executive students with the tools to
ensure all elements in an alliance are taken into account and
assessed. The steps outlined in the book show how these
elements can be combined to form a
successful alliance.
AlliancesÂ will help to avoid
the common pitfalls of
overemphasizing control or
trust.

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Sample material taken
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Extract taken from Alliances: An Executive Guide to Designing Successful Strategic Partnerships.
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Multi-partner alliances:
The more the merrier?
In addition to alliances between two partners, alliances involving larger numbers
â&#x20AC;&#x201C; or sometimes even vast numbers â&#x20AC;&#x201C; of partners exist. This chapter analyses
the structures of such multi-partner alliances. In high tech sectors, the average
number of multi-partner alliances has been stable over the years. Approximately 15 percent of all alliances in this sector have more than two partners.1
Multi-partner alliances are common, particularly in IT-related sectors. The need
to combine technologies and to work on standardization and interoperability
of products drives IT firms to collaborate in larger constellations. In other
sectors, such as biopharma, the number of multi-partner alliances is much
smaller because technologies in those sectors traditionally operate on a standalone basis. However, given the advent of the use of IT in biopharma and with
increased pressure to share R&D expenses, the number of multi-partner alliances in biopharma seems to be increasing.
Apart from the technological drive of firms to enter into multi-partner alliances,
other reasons exist for frequent multi-partnering. Competition is one such
reason. Companies can combine their strengths to compete with a large competitor. To compete with Microsoftâ&#x20AC;&#x2122;s initiatives around identity management on
the Internet, its competitors joined forces in the Liberty Alliance to develop a
competing offer. Similarly, when Vodafone became a powerful player in the
European telecom market, Deutsche Telekom, Telecom Italia, TeliaSonera, and
Orange joined forces to form the Freemove alliance as a countervailing power.

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ALLIANCES

Other reasons to set up multi-partner alliances, such as reaping economies of
scale, sharing risk, or exchanging knowledge, are not unique to these structures.
Bilateral alliances may be formed for these same reasons. However, multipartner alliances open up more opportunities to achieve these goals: as more
partners join, the benefits that can be realized increase. Obviously, a limit exists
to the number of partners that can join an alliance, and multi-partner alliances
come with a number of challenges that increase in importance when the number
of partners increases.2
First, relationship building becomes more complex. Each partner must build a
relationship with all other partners in the alliance. As more partners join an
alliance, the relationships tend to remain shallow and significant trust may fail
to develop. Such a situation diminishes the benefits of the alliance because
exchange of knowledge and information is less likely when relationships are
superficial. Therefore, alliances with many partners usually focus on less farreaching goals that do not reach deeply into alliance membersâ&#x20AC;&#x2122; organizations.
Only over time might such an alliance deepen and intensify its relationships
and goals.
Second, each partner has its own strategy and goals. The chance that all strategies fit together decreases as more partners join. As a result, multi-partner alliances find it difficult to define projects that benefit all members. Therefore, the
scope of multi-partner alliances tends to be narrower than the scope of bilateral
alliances. For the same reason, the projects that a multi-partner alliance executes will have longer-term strategic effects instead of an immediate impact on
competition in the sector.
The third challenge is to discover partnersâ&#x20AC;&#x2122; opportunistic behavior. Monitoring
the contributions of all partners and determining whether they are actually
committed to the alliance or whether only lip service is paid is difficult. Freeriding and profiting from the work of others without contributing oneself is
easier to cover up and more likely to go undetected in multi-partner alliances.
One solution to this problem is to increase control procedures, which in turn
makes the alliance less flexible and increases governance costs.
Decision making is a fourth challenge. Consensus is often difficult to reach and
democratic decision making may hold back the entire alliance. In practice,
many multi-partner alliances have a dominant partner (or partner group) that
guides the decision making in a certain direction. This partner must understand
its specific role and exercise restraint in using its power by taking into account

MULTI-PARTNER ALLIANCES: THE MORE THE MERRIER?

147

the interest of others. The METRO case discussed in this chapter illustrates
such an alliance structure.
Finally, the composition of multi-partner alliances is rarely stable. Over time,
existing partners leave and new partners join. The inflow and outflow of
members require continuous management attention. New relationships need to
be built and old ties are severed. Multi-partner alliances are time consuming
and require more management hours than bilateral alliances, thus limiting the
number of alliance members.
Because of the aforementioned reasons, only well-designed multi-partner alliances are viable. The following four different models for multi-partner alliances
have emerged in practice:3
•

A general assembly or democracy model in which all partners vote on decisions. In the purely democratic model, the one-man one-vote rule is applied.
Other models may specify different voting rights, such as in relation to
partner size.

•

The lead partner model, in which one dominant company acts as the first
among equals in the alliance and has a more significant decision-making
role. A variant of this model is a lead partner group comprised of a smaller
inner circle of partners that guides a larger alliance.

•

The alliance support office, which is a central office created by the partners
to support the alliance’s administrative processes. Alternatively, the alliance
support office may have an active decision-making role.

•

Joint ventures in which the partners participate as shareholders and the joint
venture manager has its own decision-making responsibility.

The general assembly: the Prominent cooperative
Early in the 1990s, Dutch tomato growers were confronted with a major loss of
market share. The growers had a leading position in Western Europe but sacrificed tomato flavor by increasing the quantity of production. German consumers
who for years formed the most important markets for Dutch tomatoes stopped
buying them from one day to the next. They qualified Dutch tomatoes as “water
bombs,” or flavorless vegetables that tasted like water. In response, tomato
growers started thinking about new ways to improve and differentiate their
products. Because these growers were small family businesses, they estimated

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ALLIANCES

that the risks connected to innovation would be too significant for their individual companies. Therefore, they sought likeminded entrepreneurs to create
cooperatives involving multiple partners.
One such cooperative is Prominent tomatoes in the Netherlands, which started
in 1994 with six vine tomato growers that owned 20 hectares of greenhouses,
in which tomatoes are grown in the Netherlands. In 2013, the cooperative had
23 members that owned 206 hectares of vine tomatoes in greenhouses. Prominentâ&#x20AC;&#x2122;s mission is to produce vine tomatoes in a sustainable way in harmony
with the environment and society. The cooperative is an instrument that helps
its members operate their business profitably. Hence, the primary strategic
imperative is not to build Prominent as a business but to strengthen the partnersâ&#x20AC;&#x2122; businesses by collaborating.
Figure 7.1 depicts the structure of Prominent as of 2006, when it had 22 vine
tomato growers as members. The cooperative has a board whose members are
elected from the membership. The cooperative owns a holding that, in turn, is
the mother company of a number of daughters. One daughter is a packaging
company in which specialized machines package tomatoes for different markets.

22 tomato
growers

Working groups

Cooperative Prominent

Prominent Holding BV

Different limited companies

FIGURE 7.1: Structure of the Prominent cooperative

MULTI-PARTNER ALLIANCES: THE MORE THE MERRIER?

149

Another daughter company is a greenhouse in which the partners experiment
with new technologies for growing tomatoes, such as new forms of lighting that
influence the growth of plants or energy-saving technologies. For the partners
to experiment with these technologies on their own is much too expensive.
Jointly, they can afford making investments into innovative efforts, and the
lessons learned from these innovations are available to them. Next, the individual growers decide whether they want to implement the lessons learned in
their own greenhouse.
Members are obliged to participate in management of the cooperative. They do
so by serving on the board, being a member of a working group, or being
involved in running the daughter companies. Working groups focus on themes
such as marketing or purchasing. The advantage of this approach is that it
fosters specialization, wherein some growers are good at purchasing and others
have a great feel for marketing. Growers choose the job they are most competent
at, gather even more knowledge and expertise in that area through experience,
and increase the benefits for all members. Individual members are obliged to
follow the decisions made by the working groups; in other words, if the purchasing working group decides that a certain supplier is the best, all members
need to purchase from that specific supplier. Another obligation is that they
have to follow a number of rules for growing their vine tomatoes to ensure
quality and realize the mission. Essentially, the cooperative handles all noncore – in other words, all non-growing-related – activities of the members. The
alliance is also open ended. Many of the ideas that it implemented were not
thought of at its start 20 years ago.
The board consists of a handful of members and meets on a weekly basis. The
board is accountable to the general meeting of members that takes place each
month. Important investments, such as the creation of a new daughter company,
are subject to agreement by the members. When a proposal is put to a vote, the
partners do not quite follow the one-man one-vote rule. Instead, the number of
votes that a grower has is directly related to the number of hectares he owns,
up to a maximum of five hectares. The working groups report to the board on
their activities.
The partners also learn from one another in the core of their business: improving the growing of tomatoes. They visit one another’s greenhouses to learn the
latest tricks of the trade. An obligatory excursion to one of the partners’ greenhouses is held each week. A quality test of the tomatoes produced by the
growers occurs on a biweekly basis, making transparent the quality scores of
each grower.

150

ALLIANCES

Over time, the collaboration intensified. For example, not all membership obligations were instituted in the beginning. Moreover, the daughter companies
were created over time and managers were hired to run the daughter companies.
Because not all members agreed with all of these decisions, some left and new
ones were asked to join. The number of members is maintained at between 20
and 25. New members have to meet specific criteria. They must be located in
the same region, must grow a particular species of vine tomatoes, must have a
similar philosophy about the direction of their company, and must be willing
to be involved in the cooperative. The requirement to be located in the same
region as the other growers has a long historical background. That particular
region is the worldâ&#x20AC;&#x2122;s leading horticultural region. It is relatively small and culturally homogeneous, and most Prominent partners know one another informally because they are neighbors, relatives, or members of the same sports
clubs. Such relationships foster trust among the members. Because the cooperative conducts important aspects of the growersâ&#x20AC;&#x2122; business, a high level of trust
is necessary. The informal relationships among the partners ensure that this
trust exists.
Based on the size of their businesses, the members give loans to the cooperative
for a five-year period (or until they leave the cooperative, whichever is earlier).
Any profits remain in the cooperative. A maximum of 10 percent of the profits
from the daughter companies is available to hired managers of those companies
as an incentive. The individual members receive profits from being a member
through improvements in their knowledge, lower purchasing prices, and better
sales prices.
Prominent shows a mix of trust and control elements. A number of obligations
are tied to being a member. Simultaneously, partner selection, regular joint
meetings, and visits to the greenhouses ensure that relationship building occurs.
Trust is recognized as an important mechanism in the alliance. The conscious
policy to allow only regional tomato growers to join the cooperative is an
example. Over time, a slight trend has emerged to increase control. As investments in the daughter companies grow and the concept of the cooperative
develops, the parties are feeling the need to strengthen the formal rules.
The high reliance on the informal elements of the Alliance Design Framework
enabled the alliance to adapt to changing circumstances. The ability to manage
dynamics is also fostered by the fact that internal alignment is not a challenge.
The companies are small family businesses and the owners participate in the
alliance themselves. As a consequence decision making is fast. A final condition

MULTI-PARTNER ALLIANCES: THE MORE THE MERRIER?

151

that helps to manage dynamics is that exit is easy. Partners that might otherwise
hold back change can leave the alliance easily.
Prominent is not the only cooperative to have emerged from the crisis in the
early 1990s. Other growers set up similar initiatives, also around other crops,
flowers, and potted plants. The â&#x20AC;&#x153;water bombâ&#x20AC;? disappeared as a result of these
efforts. In 2005, the Dutch growers regained their position as the most important
suppliers of tomatoes to the German market.
In the general assembly model, the ultimate power lies with the general meeting
of the members of the alliance. Voting is a normal procedure and is used often
as a mechanism to decide on issues. This model is relevant when the investments and risks of the partners are relatively similar. When they are not similar,
the lead partner model may be more relevant.

The lead partner:4 METROâ&#x20AC;&#x2122;s Future Store Initiative
How do you keep more than 50 partners focused on and aligned with innovation? The German METRO Group, the third largest retail chain in the world,
answered that question by designing a trust-based network. After a strategy
review, METRO decided that the way to differentiate its supermarket chains
from competitors was to apply more technology in their stores. Because METRO
is not a technology company, it asked one of its main suppliers, Intel, how to
innovate. In 2001, they jointly came up with the idea to create the Future Store
Initiative. This Initiative aimed to build the supermarket of the future in a reallife setting. To fill the supermarket with the latest technology, more than 50
partners were invited to contribute their ideas and technologies.
A crucial issue was the development of an RFID (radio-frequency identification)
standard for supermarkets, which did not yet exist at the initiation of the Future
Store Initiative in 2002. RFID chips are tags that send out a radio signal that
can be used for a variety of purposes. For example, tags can be attached to
a crate of Coca-Cola when it leaves the factory for delivery at a supermarket.
Once the crate arrives, the radio signal can be picked up and the presence of
the crate is automatically registered in the IT systems of the supermarket. This
process saves handling costs and provides opportunities for optimization. For
technology companies, the Future Store Initiative was an appealing idea. By
developing an RFID standard, a new market could open up, enabling the Initiative to sell its technologies to the supermarket sector. In addition, the Future

152

ALLIANCES

Store Initiative is a real-life store; therefore, the partners showcased their technologies not in an experimental setting as they usually did, but in a supermarket
where people shopped, enabling the benefits of the new technology to be shown
in practice. Finally, many technology companies already focused on retailing
or were evaluating that market. Joining the Future Store Initiative could help
them to realize their strategy for the retail market. The strategic imperatives of
the partners combined well with the value proposition of the Future Store
Initiative.
RFID was not the only technology to be implemented. Partners were invited to
contribute their ideas on anything that could enhance the shopping experience.
Over time, the partners proposed technologies such as:
•

Personal shopping assistants: the ability for a customer to email his/her
shopping list to a shopping cart for display on a small screen.

•

Intelligent scales: scales that automatically recognize the fruits and vegetables placed on them.

•

Self-checkout: different systems for self-checkout were attempted in the
store.

•

Electronic advertising displays: rather than having the in-store paper advertising that displays what is being offered, electronic displays save on handling costs because manually changing all of the paper ads is not needed.

•

Information terminals: an example is a wine terminal that enables shoppers
to search for the wine that best matches their taste. Next, a spotlight in the
ceiling shines on the shelf where the chosen bottle is located.

In December 2002, METRO selected an existing supermarket, removed everything inside, and invited the partners in the Initiative to implement their ideas.
Broadly, the Initiative has six types of partners: RFID partners, trade technology
partners (specializing in retail technologies), brands (producing consumer
goods), IT technology and service partners, software companies, and other
service providers. To accommodate the fact that some partners contributed to
many projects in the Store, whereas others worked on only one project, three
levels of partnership were defined: platinum, gold, and silver. At the launch of
the Future Store, the Initiative had three platinum partners: Intel, SAP, and IBM.
METRO invited partners that it knew well to participate. It had relationships
with some of the partners that went back decades. Moreover, many of the partners knew one another as well, leading to a web of personal relationships. When

MULTI-PARTNER ALLIANCES: THE MORE THE MERRIER?

153

certain competencies were missing, METRO relied on the partners to bring in
their best relationships, leading friends of friends to join the network. Most
partners were suppliers to METRO, even though the Future Store Initiative was
strictly separated from the purchasing relationship with the suppliers. METRO
did not even make commitments to buy technologies from the suppliers who
participated in the Future Store Initiative in the event that it decided to roll out
that technology in other stores. Still, METRO was an important customer and
the companies certainly did not want to disappoint it. METRO also invited
partners for clearly specified roles. The major competitors in the software industry, Microsoft, Oracle, and SAP, were involved. To ensure that they did not
compete directly, each was given a specific role to play that did not overlap
with the role of its competitors. For example, Oracle was asked for the databases
and SAP was asked for its ERP software.
The partners were asked to make a financial contribution to the project. Each
partner invested some cash into a fund that was primarily used for marketing
the outcomes of the Initiative. In addition to that contribution, the partners were
free to decide on how much staff and resources they would make available to
the project. The minimum requirement was at least one person as a point of
contact. No obligation existed to contribute more. Each partner carried its own
expenses. “Revenues” included learning, reputation building, and – hopefully
in the future – the opening up of a new market.
Approximately 50 partners participated at the start of the Initiative. In 2013,
this number had grown to more than 75. In addition to the software partners
already mentioned, additional partners include well-known consumer goods
producers such as Coca-Cola, Danone, and Henkel; RFID experts such as Checkpoint; retail technology vendors such as Mettler Toledo; technology providers
such as Cisco, Fujitsu, IBM, and Siemens; and other service providers such as
Accenture, DHL, and Visa. Some outflow of partners occurred, but overall participation grew.
Because the Future Store Initiative was meant to be a long-running project, a
structure for the alliance needed to be implemented. Figure 7.2 shows the
formal structure that was devised early in the project. An executive committee
was created with representatives from the platinum partners. It held regular
meetings and decided on marketing and communication, and on the exit
and entry of partners. Within the executive committee, METRO played the
leading role and had the final authority on all decisions. All partners are
invited to two to three marketing committee meetings a year, at which time
progress is reviewed and evaluated. Four project teams focus on the four areas

of innovation identified by the Future Store Initiative: comfort shopping, smart
checkout, in-store information, and supply chain. A METRO project manager
heads each project team. Next, project teams coordinate the individual innovation projects, each of which has a manager.
Legally, only a short memorandum of understanding was signed that primarily
contained intentions, accompanied by a non-disclosure agreement. These documents highlight the vision behind the alliance and the required resource commitments, as previously described. No exclusivity exists within the Initiative:
competitors may enter the network and existing partners may enter into similar
relationships with competitors of METRO. Partnerâ&#x20AC;&#x2122;s proprietary and confidential intellectual property that is contributed to the Future Store Initiative
remains as such. However, all lessons learned in the Initiative are open and
may be used by the partners in any way they see fit. No end date is set for the
alliance. The concept was to continue to innovate and not to make the Initiative
a one-time project. In short, the Future Store Initiative was based on few formal
agreements.
Why does an alliance with such limited agreements work? Partners contribute
because they see the opportunity to increase the pie and break open a new
market. That vision was appealing. In addition, the partners do not want
to disappoint an important client. Finally, even though the resource commitments they have to make are substantial, from an innovation perspective the
partners can innovate at a much lower cost than on their own. Because

MULTI-PARTNER ALLIANCES: THE MORE THE MERRIER?

155

the partners make their own investments and have no guarantee that they will
get any business out of it, no exclusivity could be demanded and IP rules have
to be flexible. If METRO asked for exclusivity, the partners might have opted
not to join the project. Moreover, METRO does not profit from exclusivity.
Especially with regard to RFID, METRO aimed to set a standard and the more
that companies use the standard, the higher the chance that the standard is
widely accepted. In addition, more important than owning all innovations at
one point in time is to continue to innovate. The Future Store Initiative enabled
METRO to do just that.
The early phase of the project was particularly noteworthy. After the first discussions took place with Intel in 2001, in 2002 a location was selected for the
Future Store in an existing supermarket. In September 2002, that store was
stripped and an aggressive deadline of April 2003 was set for its reopening. To
add to the pressure, German supermodel Claudia Schiffer was hired to open
the store, which guaranteed major media attention. Therefore, the April deadline had to be met and all of the technology needed to work flawlessly. If not,
the partners would suffer major damage to their reputation.
People working for the Initiative were required to be present on site. A fun
target, good existing relationships, high time pressure, colocation on a single
location, and the risk of reputation damage in front of the world press combined
to create strong social capital among the participants. A Future Store community came into being. A website listing the competences of all of the individuals
involved in the Future Store Initiative also enabled the right people to get connected and resulted in a culture of collaboration.
For the rest, the project was not overly structured. No detailed planning occurred
upfront but deadlines were set on the go. METRO paid close attention to
execution and getting the details right. In this way, the necessary structure
was combined with room for self-organization, and the combination proved
fruitful. METRO did not have to exercise its power much and intervened only
on rare occasions. For example, it decided that IBM should be the system integrator of the project once it became clear that having a system integrator was
necessary.
In 2013, the Initiative was still operational. Some technologies are being rolled
out and further research is occurring, as is continuous experimentation. To keep
the network vital, METRO continued to set new challenges, such as creating an
RFID center to showcase technologies. The introduction of new partners into
the alliance is also a way to keep the alliance fresh, to gain access to new ideas,

156

ALLIANCES

and to signal that existing partners could not rest on their laurels. Finally, the
network is kept fresh by co-opetition. The presence of competitors in the alliance stimulates companies to continue to contribute their best efforts even
when they have no legal obligation to do so.
The benefits of participating in the Future Store Initiative lie in learning about
technology implementation, understanding the business consequences of technology use, and gaining access to a network of specialists. The marketing impact
of the Future Store was also valuable and the store opening achieved worldwide
media coverage. For many partners, that alone compensated for the investments
they made. METRO gained access to many new technologies that enhanced the
shopping experience. The effect of the technologies on consumers is measured
and many shoppers rate their satisfaction with the technologies as high.
As the structure shows, METRO is not just a first among equals but has a final
say on most issues. However, METRO realizes that it cannot dictate the alliance.
For the alliance to be successful, each partner must be able to realize its benefits
as well. Although the formal structure gives METRO the lead, in practice
METRO manages the alliance much more on a consensus basis and ensures that
everyone is heard, all interests are taken into account, and communication lines
are open. Such tactics help maintain the commitment of the partners.
The governance of the Future Store Initiative is almost completely based on
trust, and mechanisms were built in to ensure that trust-based governance was
effective, including an appealing vision that ensured intrinsic motivation of the
partners to contribute, a focus on value creation, the choice of partners they
trusted, and a limited number of rules. Yet, some control elements also existed.
METRO is a big client for most of the partners, which acts like a stick for the
partners alongside the carrot of opening up a new market. The worldwide publicity that was ensured by, among others, hiring a world-famous model to open
the store also meant the risk of reputation damage if the technologies failed in
front of the eyes of the assembled world press. Moreover, note how different
mechanisms reinforced one another: the fun vision, the colocation, the time
pressure, and risk of reputation damage together created the high performance
culture of the alliance. Note that all of these relate to the informal elements of
the Alliance Design Framework and that the formal structure is limited.
Given the number of partners of the Future Store Initiative, the burden of coordination may become great. In the Future Store Initiative, the burden is lessened
by relying on self-organization. Because separate projects are defined that
operate quite independently from one another, coordinating much across

MULTI-PARTNER ALLIANCES: THE MORE THE MERRIER?

157

projects to ensure consistency is not needed. Still, the investments that METRO
Group has to make in governing the alliance are substantial. When the burden
of coordination becomes too high, an alliance support office may be useful to
ensure consistency in coordination across partners and alliance projects.

The alliance support office: SkyTeam
Alliance support offices make sense when the number of partners in an alliance
grows. Two varieties of support offices exist. One is an alliance support office
that is completely operational and that supports the implementation of the
decisions that partners agreed to. The institution is primarily occupied with
carrying out the decisions made by the partners. In the second variety, the alliance support office plays an active role in decision making and may even take
the lead in the alliance. The office has the power to enforce implementation of
alliance policies in individual alliance partners. In both varieties, the alliance
support office may also act as a broker among partners, attempting to reconcile
differences and act as a go-between.
The first type of alliance support office is used by the large airline alliances of
SkyTeam, Star Alliance, and oneworld (see Table 7.1 for details about these
alliances). The alliance structure was chosen over mergers for a variety of
reasons. For example, in most cases, the level of integration required to achieve
the benefits of collaboration does not require more far-reaching integration
through mergers or acquisitions. In addition, mergers between airlines in different countries face various legal obstacles. Sometimes these obstacles are

TABLE 7.1: Three airline alliances compared (2012)5

Founding year
Number of
members

Passengers per
year (in
millions)
Destination
countries

Star Alliance

SkyTeam

oneworld

1997
27, including
Lufthansa,
Singapore Airlines,
United Airlines
679

2000
17, including Air
France/KLM,
Delta, Alitalia
531

1999
12, including
American Airlines,
British Airways,
Japan Airlines
324

193

178

149

158

ALLIANCES

anti-trust related, sometimes governments limit the acquisition of national carriers by foreign companies, and sometimes treaties between countries regarding
the use of airspace make such mergers legally complex. The three main alliances circumvent these problems.
Airline alliances were primarily initiated to combine networks through code
sharing and to combine frequent flyer programs, allowing passengers to “earn
and burn” their frequent flier miles across the alliance partners. This tactic
enables an airline to offer more destinations to its passengers. To achieve this
goal, airlines primarily seek to collaborate with complementary airlines that fly
different destinations rather than with direct competitors that fly the same
routes. This complementarity results in a lower level of integration in these
alliances than in the Air France/KLM, Delta, Alitalia alliance. However, more
recently with alliances having their route networks in place, they have started
to focus on realizing more customer benefits, which requires closer collaboration around service levels, transfer processes, and the like.
This development also has implications for the governance of the alliances. For
a long time, SkyTeam had no centralized office; however, coordination needed
to increase given the increase in membership and greater focus on customer
benefits. Now, the central SkyTeam office has approximately 30 employees that
work with the members in different working groups to align the partners.
Working groups focus on promotion, product and service, and operational processes. Pricing and optimal use of capacity are outside the scope of the alliance
because they have immediate anti-trust implications.
Figure 7.3 presents the structure of the SkyTeam alliance. The strategic decisions in SkyTeam are made by the Governing Board, which consists of the CEOs
of the member airlines. They decide on the activities that require priority and
have the final say on new members joining the alliance. The SkyTeam’s centralized office has a managing director who, together with his management team,
is responsible for implementing the strategic plan as decided on by the Governing Board. Next to this operational task, the managing director also develops
proposals to put to the Governing Board.
The main functions of the centralized office are:
•

Preparing the decision making, in other words, developing proposals with
the members about projects to be put to the Governing Board;

•

Facilitating implementation of the decisions made; and

MULTI-PARTNER ALLIANCES: THE MORE THE MERRIER?

19 members

159

• Contractual alliance on the SkyTeam level
• Bilateral alliances among the members

Governing Board

• Strategic decision making
• Consensus based

Managing Director

• Operational execution

SkyTeam centralized office

Working Groups
FIGURE 7.3: SkyTeam governance structure in 2013

•

Executing some operational tasks, such as acting as a spokesperson for the
alliance and taking care of advertising.

To the greatest degree possible, decision making by the Governing Board is done
by consensus. Because of the differences in strategy and maturity of the partners, achieving consensus on all issues is not always possible. Therefore, if
consensus cannot be reached, a smaller group of partners may still decide to
implement a certain decision. In that case, the others are not obliged to follow.
Hence, integration occurs at different speeds to allow for company differences.
This is a mechanism to deal with dynamics in the alliance.
New members are obligated to enter into bilateral alliances with the other partners. These alliances provide the backbone for implementing the SkyTeam
policies. SkyTeam has many basic requirements regarding IT, service levels,
code sharing, use of airport lounges, safety, and frequent flyer programs. Working
groups ensure consistent implementation of these requirements across the
members. They consist of members of the centralized office and representatives
from the member airlines and play an important part in ensuring internal alignment of the partner organizations with the alliance. To implement all of the
requirements usually takes approximately 1.5 years. Because of these investments, exit from the alliance can be expensive, especially because members
also have to pay an exit fee.
The other two airline alliances have a similar structure. The oneworld alliance
has a management company and a Governing Board consisting of the CEOs of

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each of the member airlines. The chairmanship of the Governing Board rotates
annually. The Star Alliance structure is somewhat different.6 Its Chief Executive
Board guides the strategic decision making, and the alliance has one layer more
than the other two alliances. The Alliance Management Board, consisting of the
alliance managers of the member airlines, acts as the Supervisory Board to the
Star Alliance GmbH, the centralized office of the Star Alliance. This office
coordinates, monitors compliance to standards, stimulates the exchange of best
practices among the members, and develops alliance products and services.
Sounding boards and advisory groups fulfill similar functions as the SkyTeam
alliance working groups. The Star Alliance has approximately 75 standards in
different areas that are enforced across all members to facilitate collaboration.
In terms of control and trust, the previous description of the role of alliance
support offices in the three airline alliances shows that their focus is clearly on
control. They emphasize the formal elements of the Alliance Development
Framework over the informal ones. However, this control is not strategic but
primarily operational. To the extent that these offices take on more of the decision making and are able to enforce alliance policies, their role becomes more
strategic. The alliance offices in the airline business have a pure coordination
role, which makes them different from joint ventures that also have an operational task to produce something or deliver a commercial service.

The multi-partner joint venture: the Holst Centre
The Holst Centre, a research center in which companies and universities share
common infrastructure for the development of flexible electronics and sensors,
uses the joint venture model. Partners include Agfa, ASML, Bayer, DuPont,
Philips, Solvay, Sony, Fujitsu, and many more. The reason behind this joint
venture is scale economies. By sharing the physical infrastructure as well as
some basic research projects, the partners are able to lower their cost of innovation compared with a situation in which they would do everything in house.
In this case, self-coordination is not a feasible option. To optimally profit from
the economies of scale, centralization is required.
Multi-partner joint ventures do not differ much from bilateral joint ventures, as
discussed in Chapter 6 and not repeated here. Naturally, they face the more
challenging task of keeping many partners satisfied that may have conflicting
goals. The Holst Centre solves this challenge by carefully balancing the partnersâ&#x20AC;&#x2122; common and private benefits by conducting research that benefits all
partners and setting up projects that may benefit only one or a subset of part-

Partner C

MULTI-PARTNER ALLIANCES: THE MORE THE MERRIER?

1.Strategic
know-how in
research
domain

161

2. IP in coownership

3. IP for
licensing

4. Exclusive
IP

Expanded know -how
at completion of
program

FIGURE 7.4: IP structure Holst Centre7

ners. This balance becomes clear in Holstâ&#x20AC;&#x2122;s IP (intellectual property) policies,
which reflect a continuum from jointly owned to individually owned IP.
The Holst Centre distinguishes different types of IP, each with its own ownership policy. Figure 7.4 shows the different flavors. First and not shown in the
figure is background IP that partners contribute: this IP is owned by the contributing partner. Second, a joint research program delivers IP that represents
strategic knowledge in the research domain. Partners pay an entrance fee to
participate in the Holst Centre, which gives them a non-exclusive license on
this IP. All partners receive exploitation rights, but they do not own the IP. The
next step is when partners participate in specific research programs carried out
jointly by the Holst Centre and one or more partners. The Holst Centre and the
partner(s) that collaborated on it co-own this IP, which is licensed to the other
partners. IP for licensing refers to IP that may be created by Holst itself or may
be generated by the partners but is of little interest to them. This IP is not
co-owned and can be licensed by Holst to third parties.
Finally, exclusive IP is generated in a research program exclusive for one
partner. The Holst Centre limits this type of research to special circumstances.
It only occurs when other partners agree and one of the following three situations occurs: 1. a partner must bring in own IP to create the new IP and it cannot
create this new IP itself; 2. a small- or medium-sized company is involved and
part of the IP created by the collaboration can be brought into the strategic
know-how in the research domain; 3. a spin-off is created from IP that is not
used by the partners, and the spin-off then receives ownership of or an exclusive license to the IP.

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ALLIANCES

Assigning various property rights to partners is an important part of the deal
structuring of alliances. Because it helps set the incentives that the partners
have to collaborate, such assignments affect governance. The more aligned the
property rights are with the alliance’s and the partner’s strategic imperatives,
the easier governing the alliance becomes, making it clearly a control procedure.
In fact, the Holst Centre relies more on control than on trust. The lesson from
the Holst Centre in relation to multi-partner alliances is that to accommodate
different interests, a continuum of projects can be created, each with different
levels of participation from partners. This creates flexibility and enables the
alliance to cope with dynamics. In addition this flexibility makes it easier for
a larger number of partners to align with the alliance, because they can choose
which participation level is most appropriate to them.

When to use different multi-partner alliance models
“The more the merrier” is not a saying that applies to alliances. The management of multi-partner alliances is challenging. The cases discussed in this
chapter show a number of general features of multi-partner alliances:
•

Consensus seeking. Some form of democracy or consensus is at work, even
when the alliance has a lead partner or strong central joint venture management. In the end, the lead partner also depends on the commitment of others
to achieve his goal. Enlightened self-interest ensures that the lead partner
applies unilateral decision making with caution.

•

Common core. Minimum standards for partners to join are set, and partners
are free to move beyond those standards. Prominent has rules and procedures for growing tomatoes that everyone must meet, but the partners are
not obligated to implement the latest lessons learned in the experimental
greenhouses.

•

Accommodation of differences. Different speeds and levels of contribution
accommodate differences among the partners. In the Future Store Initiative,
some partners contribute significantly and become platinum partners; others
contribute less and become silver partners. In SkyTeam, all members must
meet minimum conditions, but some get there faster than others. The Holst
Centre defined different levels of participation.

•

Limited scope. In terms of development over time, most multi-partner alliances start with a limited number of projects. Over time, the relationships
may broaden or deepen.

Operational focus. Operationally, alliances have either tight control
(METRO, SkyTeam) or high trust (Prominent) to prevent the partners from
engaging in opportunistic behavior.

â&#x20AC;˘

Exit and entry. The collaboration is not sensitive to changes in the composition of its membership. If one member leaves, the alliance should not collapse. Of course, the exception is when the partner leaving is the lead
partner.

The cases reveal a number of differences between the forms of multi-partner
alliances (see Table 7.2). The core difference lies in the decision-making model
used. The dynamics of decision making are quite different and range from
voting to consensus to lead partner decision making. The cases reveal a number
of underlying patterns that explain why the decision-making mechanisms
differ.
The general assembly model is applied when the required task coordination is
low, which is the case when alliance projects do not need to be coordinated
and partners do not have to follow all of the rules of the alliance. In the Prominent case, the separate projects executed could primarily function on a standalone basis and the partners only had to follow the basic growing requirements.
Compared with SkyTeam, in which all partners need to implement all rules
consistently, the demands on coordination are lower in Prominent. In the Holst
Centre, the coordination of joint research and the physical infrastructure is a
significant task that requires the joint venture structure.

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ALLIANCES

The ability of partners to coordinate among themselves also determines the
choice of form. The better the partners know each other, the higher the social
capital and the larger the number of people having direct access to one another’s
organizations, the more self-coordination is facilitated. If the level of selfcoordination is medium or low, an alliance support office or joint venture is
necessary.
The choice for a lead partner is primarily related to the presence of one party
that commits more resources to the alliance and, therefore, faces greater risk.
Such a partner that is trusted by other partners may reasonably become the
lead. A final issue in determining the choice of form is the optimal level of
accountability. A joint venture is a sensible option when the use of a jointly
owned asset needs to be optimized. In that case, the joint venture is not only a
vehicle that legally owns the asset, but is also accountable for putting it to good
use. In the general assembly model and the lead partner model, no separate
accountable entity exists. In the alliance support office model, most of the
accountability lies with the individual partners. The alliance support office
only has to account for efficiently delivering its services, and targets may be
defined to measure the office’s efficiency.

Praise for Alliances
“ If you’re
looking for a change in
your approach to alliances,
reading this book will most
certainly help you. This truly multisector, international and holistic
book will help alliance professionals
reflect on how they are doing.”
Hans de Roos,
Senior Vice President Strategy
and Corporate Development,
KLM

“This book
provides a thoughtful
and interesting treatment
of core managerial challenges
in alliances: maintaining trust and
control, as well as managing novel
forms of collaboration.”
Jeffrey J. Reuer,
Blake Family Endowed Chair in Strategic
Management and Governance, Krannert
School of Management, Purdue
University

“For pharma
industry colleagues, this
book provides many profound
insights, not only due to numerous
case studies but also because of
its systematic review of all relevant
aspects. The theory is well-illustrated by
detailed examples, based on in–depth
research and interviews with alliance
protagonists in various industries.”
Anthony Hoerning,
Head Alliance Management General
Medicines, Novartis Pharma AG

About the Author
ARD-PIETER DE MAN is Professor of Knowledge
Networks and Innovation at the VU University
Amsterdam and Dean of Sioo, Inter-University
Centre for Organizational Studies and Change
Management. A leading alliance thinker, he was
the first European to be elected to the Board of
Directors of the Association of Strategic Alliance
Professionals. The author has been working as
a consultant in this area for 15 years as well as
teaching and writing in the academic field.